Kforce, Inc.

Well, good day, everyone, and welcome to the KFORCE Q3 2024 Earnings Conference call. At this time, I would like to hand the call over to Mr. Joe Liberatore. Please go ahead, sir.

Good afternoon, and thank you for your time today. This call contains certain statements that are forward-looking, that are based upon current assumptions and expectations, and are subject to risk and uncertainties. Actual results may vary materially from the factors listed in K-Force's public filings and other reports and filings with the SEC. We cannot undertake any duty to update any forward-looking statements. You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the investor relation portion of our website. Before I summarize our third quarter performance, I'd like to comment on the recent hurricane that impacted the Tampa Bay area where our corporate headquarters is located, and more broadly across Florida, North Carolina, and neighboring areas in the southeast. Hurricanes Helene and Milton had devastating impacts across these areas and impacted our people, their families, our communities, and local businesses. These areas continue to recover and rebuild, and many have long roads ahead. Despite these hardships, our team's resiliency, was on full display, and I am simply in awe of the tremendous effort by our people to balance their personal safety, taking care of their family, and being available for their team members while also ensuring the continuity of K-Force's operations. That being said, the impacts are so much larger than K-Force, and I am pleased to announce that K-Force will be donating $500,000 to charitable organizations in the Tampa Bay area and North Carolina to aid in the broader recovery efforts. We are also organizing a KFORCE-wide event dedicated to recovery efforts. We talk about the amazing culture we have at KFORCE. Seeing it in action once again over the last several weeks is truly inspiring. As for our third quarter performance, revenues exceeded the midpoint of our expectations and earnings per share exceeded the top end of our guidance. Our technology business has largely been stable for the last four quarters, and our third quarter performance was no exception. While much has been written about the uncertainty in technology hiring and demand, our internal trends and discussions with our clients continue to indicate to us that the current operating environment is more stable and constructive than it was throughout most of 2023. our footprint of providing solutions to clients that require higher-end skill sets remained in demand versus lower skill set areas where there might be a little more softness. We are seeing demand for technology resources and the desire for our clients to initiate new projects had remained consistent throughout 2024. Clients, broadly speaking, have continued to exercise a degree of caution initiating new technology investments though most critical projects continue to be initiated. There remains much economic uncertainty with the continuation of the heightened geopolitical concerns, tensions in the Middle East and the war in Ukraine, as well as the potential outcome of the U.S. election next week, to name a few. With that said, the 50 basis point rate cut in September with the probability of further rate reductions have strengthened expectations for a soft landing in the U.S. It is likely, however, that clients will remain cautious with their discretionary spending until there is more clarity in the economic outlook. The byproduct of clients being cautioned in initiating new investments for a prolonged period is increasingly strong backlog of strategically imperative technology investments. We expect this backlog to be a high priority for our clients to initiate at an accelerated pace once the macro uncertainties begin to clear. As we execute through the final quarter of 2024, we will continue to stay close to our performance indicators and trends and make necessary adjustments to our business. We are continuing to invest in our strategic priorities, which we believe will greatly benefit both top line growth and profitability improvements as markets become more constructive over the long term. One of our strategic priorities that we've been progressing is the evolution of our near-shore offshore delivery capabilities. Our teams have been at hard work listening to our clients and monitoring industry trends. Several of our executive team members took a trip to India in August to finalize our go-forward plans. Following this visit, we have made the strategic decision to establish a development center in Pune, India. Pune is one of the leading technology cities in India and we are tremendously excited about leveraging this capability to further enhance our service offerings to our clients. Our office space in Pune is in the process of being built, and we expect to be operational in January 2025. While all economic cycles behave a bit differently, what remains clear is that the broad and strategic use of technology, including the early stage technology evolution associated with AI, will continue to play an increasingly instrumental role in powering businesses. As we have previously articulated over the long term, we believe that AI and other innovative technologies will follow the historic Jevons Paradox pattern where improved efficiency ultimately drives greater demand for rather than replacing technology resources and that the pace of change will continue to accelerate. We are ideally positioned to meet that demand. Our core competency is rooted in the ability to identify and provide highly skilled critical resources real time at scale to help world-class companies solve complex problems and help them competitively transform their businesses. Our simple focused operating model also allows us to be flexible and nimble and partnering with our clients to meet their needs across a broad spectrum of engagement forms. We are continuing to experience growth in our solutions offering. which we believe speaks to the depth of our client relationships, along with our value proposition to provide cost-effective and efficient IT solutions in an addressable IT solutions market that is many times greater than the technology staffing market. Our decision to grow our business organically with a consistent, refined business model has been critical to our success over many years, and we remain confident that our firm remains well positioned. I remain confident and excited about the future of K-Force. Dave Kelly, our Chief Operating Officer, will now give greater insights into our performance and recent operating trends. Jeff Hackman, K-Force's Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations. Dave?

Thank you, Joe. Total revenues of $353.3 million were above the midpoint of our expectations for the third quarter, declining 0.8% sequentially and down 6.8% year-over-year on a billing day basis. Flex revenues in our technology business declined 0.6% sequentially and declined 5.1% year-over-year on a billing day basis. After experiencing some early July assignment ends, consultants on assignment in our technology business were stable throughout the third quarter. It remains clear that our clients, broadly speaking, are still awaiting a period of increased confidence to begin more aggressively adding resources to address the significant backlog of important technology initiatives that has built up over the last two plus years of measured investment. It does appear clear from our performance over the past three or four quarters, the trends have stabilized. Based upon our slightly stronger start to October, and expected seasonal holiday impacts, we anticipate relatively stable sequential trends in our technology business in the fourth quarter on a billing day basis. Encouragingly, overall average bill rates in our technology business of $90 were flat sequentially, and over the last eight quarters have largely remained stable. The consistent demand for highly skilled talent on both traditional staffing assignments and project engagements have kept bill rates and pay rates stable. even as the overall industry trends have slowed in recent years. Our clients remain focused on critical technology initiatives in the areas of digital, cloud, data governance and analytics, AI and ML, UI UX, business intelligence, project and program management, and modernization efforts. We have established a foundation of sourcing quality talent at scale for our clients as demand from various skill sets change and evolve. We expect this to continue as clients look to us to provide AI-related resources as that demand increases. As technology has evolved over the decades, we have efficiently evolved with the changing skill set demands of our clients. Flex margins of 26.1% in our technology business increased 20 basis points sequentially and 60 basis points year over year. Bill, pay spreads in our technology business modestly improved sequentially, which continues to be an encouraging data point given the cloudiness in the economic environment. We have continued to broaden our service offerings beyond traditional staffing engagements to include managed teams and project solution engagements. Clients consider access to the right talent essential to their success and see our services as a cost-effective solution for their project requirements. Our integrated strategy capitalizes on the strong relationships we have with world-class companies by utilizing our existing sales teams, recruiters, and consultants to provide higher value teams and project solution engagements that effectively and cost efficiently address our clients' challenges. An increasingly important vehicle to providing cost-effective solutions is the ability to source highly skilled talent outside the United States. As Joe mentioned, we've made the decision to establish a development center in Pune, India. This development center is expected to begin supporting project engagements with our U.S.-based clients in January 2025. The establishment of the development center was a strategic imperative informed by conversations with our clients, which further strengthens an offering that has relied primarily on longstanding relationships with a number of nearshore and offshore partners. The India facility puts K-Force in a strong position to effectively compete on client opportunities that we were precluded from bidding on in the past. This development center, when combined with a strong U.S. delivery capability and a high-quality vendor network, will help us to more fully address and evolve evolving needs of our clients. Our client portfolio is diverse and is mostly comprised of large market-leading companies. Our focus on addressing their needs continues to be critical in our ability to drive sustainable long-term above market performance. From an industry perspective, our largest vertical, financial services, experienced improvement sequentially for the second consecutive quarter after some previous headwinds. We also experienced notable growth in both our manufacturing and professional services industries. Purchasing activity, even within the same industry, is uneven. We've seen significant growth in some of our largest clients while others have taken a more conservative approach. This pattern is not industry specific, but rather reflected across the corporate landscape. Looking forward to Q4, we expect technology consultants on assignment to remain relatively consistent with the levels we saw at the conclusion of the third quarter. Revenue may be stable to slightly up sequentially on a billing day basis should current patterns persist and year over year decline should be close to third quarter levels. Our FA business, currently 8% of our revenues, declined 2.2% sequentially and declined 21.4% year-over-year on a billing day basis. The year-over-year decline reflects the impact of business. We are no longer supported due to our repositioning efforts in a more challenging macro environment. Our average bill rate of approximately $52 per hour improves sequentially and is reflective of the higher-skilled areas we are pursuing that are more synergistic with our technology service offerings. We expect Q4 FAA revenues to be down sequentially on a billing day basis in the low single digits. Flex margins in our FAA business decreased 30 basis points sequentially, and we expect bill pay spreads to remain fairly stable at these levels in Q4. We continue to manage associate levels based upon productivity expectations. As we've done in prior economic downturns, we are focused on retaining our most productive associates and making targeted investments in the business to ensure that we're well prepared to capitalize on the market demand when it accelerates. For example, we've selectively invested in our sales teams while rationalizing our delivery resources, which are down roughly 11% on a year-over-year basis. Even with these reductions, we believe we have ample capacity to absorb near-term demand should it improve without adding any resources. We also continue to invest in our managed teams and project solutions capabilities and the integration of those offerings within the firm, which is progressing well. While the uncertainty in the macro environment has persisted longer than most have expected, I remain tremendously excited about our strategic position and ability to continue delivering above-market performance in our technology business as we have for over 15 years. The success that we have as an organization doesn't happen without the unwavering trust that our clients, candidates, and consultants place in us. I echo Joe's sentiments and appreciation of the incredible dedication, creativity, and resilience displayed by our teams over the last several weeks balancing personal and professional commitments through devastating hurricanes. I'll now turn the call over to Jeff Hackman, K-Force's Chief Financial Officer.